Morgan Stanley Upgrades Fast Retailing Co Ltd to Overweight, Sets Price Target at ¥55,000
Morgan Stanley has raised its rating on Fast Retailing Co Ltd (9983:JP) (OTC: FRCOY) from Equalweight to Overweight and increased the price target to ¥55,000 from ¥43,000. The firm identified Fast Retailing as its Top Pick, highlighting the company's potential for growth outside Greater China through its "Fourth Frontier" strategy.
The strategy aims to expand Uniqlo's presence in Southeast Asia, North America, and Europe, which are expected to drive around 82% of the company's operating profit gains by fiscal year 2026. The analyst mentioned that while Greater China is projected to stabilize, Japan is anticipated to maintain strong performance due to profit enhancements.
Morgan Stanley's upgrade is based on the expectation of operating profit growth of 10.2% year-over-year in fiscal 2025 and 11.3% in fiscal 2026 for Fast Retailing. The firm adjusted its earnings forecasts and applied a price-to-earnings multiple of 44.4 times for fiscal 2025 earnings. This adjustment accounts for two standard deviations above the average P/E ratio of 36.8, according to Bloomberg estimates.
The analyst believes that the overall business improvement will lead to a re-rating of the stock, especially as the market has not fully recognized the stabilization of the Greater China segment. The firm's bull case scenario sets a price target of ¥71,000, suggesting a 48% upside if global growth and the recovery in Greater China surpass expectations.
InvestingPro Insights:
- Fast Retailing's strong financial health and market performance support Morgan Stanley's positive outlook.
- The company's revenue growth and quarterly performance indicate continued expansion potential.
- Fast Retailing's solid financial position, with more cash than debt, positions it well for future growth.
In conclusion, Morgan Stanley's upgrade of Fast Retailing to Overweight and the increased price target signal confidence in the company's growth prospects. Investors may consider this opportunity for potential returns as the company expands its presence in key international markets.
